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Stock Naysayers Can't Skirt Inconvenient Truth of Small Caps

  • Return to risk-on trading sets up longer run for small caps
  • Weaker balances sheets no longer shunned as credit eases
Traders work on the floor of the New York Stock Exchange (NYSE) in New York, U.S.
Photographer: Michael Nagle/Bloomberg
Updated on

From tepid volume to an earnings recession, there’s been no shortage of reasons for investors to question the rebound that’s restored $1.7 trillion to U.S. stocks after a January selloff. Yet, there’s no denying the bullish signal emanating from one corner of the market.

The Russell 2000 Index has surged more than 13 percent from its February low, and past resurgences in risky shares have proven a boon for the market. In the three instances since 2009 that the gauge has jumped at least that much so fast, it’s rallied another 31 percent on average over the next year, 16 percentage points more than in any 12-month period during the bull market. The Standard & Poor’s 500 Index has always followed, rising 24 percent.